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Chat Transcript

Udayan Mukherjee

Has the market trend reversed?

 

Questions Answered

Q

guest: Why is the Indian Stock Market surging in spite of flattish earnings, expensive valuations and cloudy Macro Economic environment? Recapitalization and subsidies are not going to solve the core issue. Whats your view?

Udayan Mukherjee: Hello everyone, good to be on MC again. Belated Diwali greetings to all. Markets move on two things : expectations of future growth and ample liquidity. Valuations are always important but markets can go through phases ignoring high current valuations in the hope that high earnings growth in the future will moderate these. This is where the market is today. There is a huge wall of liquidity which is coming in from domestic investors, directly and through mutual funds. While current earnings growth is quite tepid, most investors believe that this could be the last quarter of poor growth and it will pick up starting next quarter. This is the reason why markets are at all time highs despite the factors you mention.
Q

guest: What is the future of General, ICICI Lombard and SBI life insurance. I have got this 3 stocks in IPO I dont see uptrend the day it listed. Can you suggest me whether to hold or sell. If I need to hold them what is the time period

Udayan Mukherjee: I hope you didn`t subscribe only with the idea of selling on listing. Insurance is a good sector for the long term in India....the only problem being the valuations at which some of the insurance IPOs are coming in. But you don`t need to panic; there is growth in this sector. As more of Indian savings get financialised, insurance will get its fair share. The high starting valuations could mean that these stocks go sideways for a while but our a period of time, most of them should generate good returns. Take a 5 year view on them, the story should play out.
Q

guest: What are prospects of UPL LTD Lupin for long term

Udayan Mukherjee: Lupin, frankly I was beginning to get the sense that it had formed a bottom and then came the USFDA news which has knocked the stock back again. This reinforces how little we know about the sector and how difficult it is to predict such events. The Goa plant is very important for the company so I guess you will see a lot of earnings downgrades now. More importantly, the uncertainty will increase again. It`s a tough one; maybe in Pharma its best to stick to companies with an India focus and less exposure to the US generics market/FDA issues for now. Else, the ride can be very volatile.
Q

guest: I have 400 shares of rcom at average price 36. What should I do while bad news about rcom is coming.

Udayan Mukherjee: Not a fan of this company or the group. The sector though is showing every sign of having bottomed out. The first hints of pricing increase are there, so the bloodbath is probably over. Stocks have jumped up a lot immediately, after underperforming for many years. Bharti and Idea are top of the heap here, in that order, and the recent outperformance of RIL also has some telecom flavour to it. Rcom is about the weakest player, and the only/best hope lies in a possible corporate event such as a sell out. Other than that, its hard to justify your investment.
Q

guest: Is Speciality Chemicals the safest bet in this market?

Udayan Mukherjee: Its a good space, but the global market for chemicals is still a bit soft. The big trigger for speciality chemical stocks will come when global demand starts picking up. Also, some of these companies who are exposed to the agrichemicals market in India could see improvement in demand going forward. So, yes, it is a good space but you may have to look through some near term softness in the large stocks here. Over a 3 year horizon, they may deliver excellent returns but the gains may be back ended. A good choice for patient investors.
Q

Ratan Luthra: Hi Udayan u believe equitues should be the prefered assett class in next 3 to 5 years vis a vis real estate, gold.thx.

Udayan Mukherjee: Yes. Real estate, I think will continue to go through a painful phase for the next 12-15 months. RERA will lead to some of the developers going belly up and may soften realty prices in many cities. Globally, volatility has been extremely low for a very long time; at some point in the next 6-9 months, there will be a spike. If/when that happens, gold will move higher. But structurally, its tough to build a case for sustained outperformance of gold. Equities are expensively valued today, but you don`t need to worry if your horizon is 3-5 years. Worst case, you may have to take in a phase of correction or sideways consolidation, in your stride, along the way. That should be an acceptable risk for a medium term investor like you.
Q

guest: Whats your expert view about market valuations...do u think about eating 2020 earnings today ?

Udayan Mukherjee: Valuations are interestingly poised today. What`s happened over the last one month is that some of the undervalued sectors have also got rerated - telecom and PSU banks being classic examples. Overall Nifty valuations are still lofty but one has to now take a more granular approach. Can NBFC stocks continue to command these high valuations in light of the fact that PSU banks will now be in a somewhat better position to compete? If crude prices climb higher will margin pressures start to build for many of the highly priced midcap stocks? Its an interesting time to be assessing valuations, keeping in mind the fact that market has already priced in a very significant earnings jump over the next 4 quarters. With that, let me check out of today`s chat. Will speak again, soon. Goodbye for now and Happy investing!
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